These things never really end well…

There has been a lot of hyped up talk this year about the looming housing “Armageddon” and massive asset bubble that experts, economists and politicians alike have been warning of for quite some time now. Scenarios of Armageddons and US Style crashes are very unlikely in Canada… however, reading through the myriad of opinions on the matter it is actually hard for the average lame person to really get a grasp of what is actually on the horizon.

Adding to the confusion is the fact that mixed messages are abound everywhere… media organizations that on one day may report of real life problems with the over indebtedness and over investment of Canadians then reports on the next day completely contradicting articles on the same matters.


The same goes for Canadian financial institutions and the mortgage/real estate industry, inaccurate and unreliable stats and figures coupled along with poor perspective and quite frankly almost fraudulent guidance to the general public. I’ve written about the dangers of running with the crowds and relying on data that you don’t fully understand, these are exactly the kinds of human behaviors that those who make a living making money off of the greater fools rely on.

So why are there so many mixed messages out there? Why does one economist from one organization have a complete opposite opinion than the economist from the bank? The answer is actually quite simple, the man from the bank has a vested interest in maintaining continuously appreciating assets… even when he knows that those assets are way over inflated and destined to correct.  In fact, just like normal everyday people he is likely to also hold a mortgage with the bank; the man from the bank is exposed to the exact same kind of risk as the general public and of course wants to do everything he can to avoid fueling the flames of the inevitable!


In addition to this, said economists’ employer (bank) also happens to be the organization that stands to lose greatly with the risk of defaulting mortgage borrowers etc, what do you think his bosses tell him his duty is? Tell the truth of the matter or present the data and message in a way that calms and re-assures everyone that everything is OK. So the message here is pretty easy to understand if you could put yourselves in their shoes why their messages would differ from that of others.

There are three important pillars (in my humble view) that comprise and support the Canadian Real Estate market these days and over the next few weeks we will explore each one and why a likely collapse in anyone of those pillars will be the catalyst to a very real and widespread correction to Canadian housing markets in many regions. For those of you that liked to read on ahead in school here’s what I will be looking at:

#1 The CMHC – Automated appraisal system (EMILI) and the fraudulent abuses of it

#2 Bank of Canada’s interest rate policies 2009 to present – The inevitable rise in mortgage rates

#3 Market Supply & Demand – Baby Boomers forced to “cash out” sooner or later and the lack of a generation of buyers to fill their void.